Persimmon back in profit helped by land revaluation

Persimmon, the housebuilder, moved back into profit last year, mainly helped by a positive revalution of its landbank.

The company has reported a profit of £77.8m compared to a loss of £780m in 2008. This includes a £74.8m writeback following an increase in the value of its land, following previous writedowns of £624m. Persimmon said house prices had held firm since the beginning of the year, but it remained cautious because of the forthcoming election and the overall economic climate. It has reduced debt from £600m to £267m, and said:

We will continue to look to reduce debt levels again this year, although we remain ready to take advantage of any suitable opportunities as they arise.

There had been some talk in the market that Persimmon might be interested in rival Bovis Homes, up 8.8p at 374.9p. Analyst Imran Akram at Collins Stewart said the company could easily get back on the acquisition trail once the election was out of the way:

Persimmon is one of the few housebuilders to seriously generate cash during the downturn. Net debt of £268m is down from £1.2bn at peak and down over £300m during 2009. The group may, in our view, return to M&A during 2010 if the post-election outlook remains visible. It has a superb track record in acquiring and cutting costs.

At 400p, the shares are trading on a 26% discount to net asset value. This is one of the highest discounts in the sector yet Persimmon is one of the best operators, and is the only housebuilder not to issue equity. As the shares are well below our 520p target price, we upgrade to buy.

Alastair Stewart at Investec was less enthused, issuing a hold note and saying:

Persimmon's full year results look better than expected on face value. This is due to a slightly better margin than we had forecast. In addition, the group revealed a net £74m write back of land. We expect to upgrade our estimates for 2010 pre tax profit to £67m, up from £27m; we were at the lower end of a wide range. However, given the cautious tone on the outlook we still see risks to volumes and price.

At the moment Persimmon is the biggest riser in the mid-cap index, up 19.9p at 420.5p.